With increasing fear of the U.S. going into default, reduced interest of foreign companies buying US Treasuries and the end of QE II, the artifically low interest rates are soon to begin heading upward. Many will see this as a constriction on the economy when actually it will be a silver lining to the pocket books of the consumer. At least initially.

The immediate benefits will be a rise in the strength of the US$ thus lowering costs of everyday good such as food and energy. The "keep rates as low as they can be" play has run its course and was largely ineffective at that. The housing market is still hurting, businesses are still not hiring at a pace that is needed to susatain any economic recovery and the Fed Gov has been increasing spending at record rates to take advantage of the historically low rates at which they are borrowing money.

So the good thing will be at least some immediate relief in the pocket books of us all when it comes to the gas pump and the grocery store. The extra disposable income could help fuel the next leg of the recovery IF the Fed and the Fed Gov don't screw it all up.

The laundry list of things the Fed and Fed Gov needs to do is so long one would not know where to begin but 2 things stand out as must-do's; curb the spending, generate some sort of certainty about the economic outlook. The bad news is that Ben Bernanke has been not just wrong but horribly wrong at every turn when it comes to the economy. So has the Fed Gov. At a time when businesses need incentive to hire they have been force fed more costly regulations and laws that do just the opposite and now several small business owners operate under the cloud of their taxes being increased.

The problem is that businesses just don't know what is going to happen 3-6 months from now let alone 3-6 years from now. Naturally this forces them to limit any plans to hire more workers or expand their operations. The Obama Administration simply does not get that or does not want to get that. The Congress in large seems to be in line with that Administration's thinking. The looming health care laws and the uncertain outcome surrounding them is a big part of why small businesses are sitting still. The other part that needs to be fixed by Congress is the complete reversal of the alleged incentives provided to small business and then the implementation of real incentives. A small business is not motivated to hire workers just because they can get a tax break on a loan to expand. A smart business owner is not going to expand their operations when there isn't any business walking in the door of their current business. This is a fundamental fact that the Obama Administration completely ignored or were to ignorant to understand.

Anyhow, we are in a unique position as a country simply because the world's commodities are denominated in our $'s. That means it is beneficial for foreign countries to buy and own US$'s to a large degree. However with the current weakness that our $ has seen it is forcing other countries to start looking elsewhere. Solution?? Make the $ worth something again. We are at a crux with the $ now. If we allow it to continue to fall you will see calls to start denominating things such as oil in some other currency and then we can hang it up because we will see $4 a gallon gas as cheap if that happens.

/rant off

FD

06-10-2011, 01:20 PM

You think the Fed is going to start rate increases soon? With the labor market and recovery still so weak, and inflation below target, that seems very unlikely. Do you have some inside knowledge? I feel like inflation would have to be seriously out of control for the Fed to decide to start raising rates and slowing economic growth in order to tame it.

Amnorix

06-10-2011, 01:23 PM

You think the Fed is going to start rate increases soon? With the labor market and recovery still so weak, and inflation below target, that seems very unlikely. Do you have some inside knowledge? I feel like inflation would have to be seriously out of control for the Fed to decide to start raising rates and slowing economic growth in order to tame it.

I think, if I understand his babble, that he's saying that bank rates, etc. will be increasing because, presumably, the fed will stop its purchases of treasury securities, etc.

That part may well be true. The next step in the "analysis", that higher rates help the economy grow, is what's completely nonsensical.

petegz28

06-10-2011, 01:31 PM

You think the Fed is going to start rate increases soon? With the labor market and recovery still so weak, and inflation below target, that seems very unlikely. Do you have some inside knowledge? I feel like inflation would have to be seriously out of control for the Fed to decide to start raising rates and slowing economic growth in order to tame it.

The Fed start increases? Maybe, there is increasing pressure from Fed Members to do so. Having said that the market is going to force the rates up.

Secondly it is not about inflation being above ore below target but that the fact that the current interest rate level is and has been for years now well below what it should be thus many economists referring to them as "artificially low".

The part you are not wanting to accept is the we are getting to the point that people are starting to call for other currencies to be the currency of choice. If that happens then you can peg super low interest rates as the reason America died as we know it economically.

Let's face some facts:

1. We are a consumption\importing economy not a manufacturing\exporting economy

3. It doesn't matter what the Fed does because buyers of bonds are going to go into full sell mode here in the next few weeks thus driving up rates whether the Fed lieks it or not.

4. The current rates are so low because we have been printing money to buy or own debt. This is a complete artificial move to give the impression that things are not what they really are. The free market will say otherwise once the Fed stops their buying.

This is just how it is. The Fed is out of bullets to play the shell game they have been playing

petegz28

06-10-2011, 01:33 PM

I think, if I understand his babble, that he's saying that bank rates, etc. will be increasing because, presumably, the fed will stop its purchases of treasury securities, etc.

That part may well be true. The next step in the "analysis", that higher rates help the economy grow, is what's completely nonsensical.

Excessive rates don't help an economy grow, correct. But the scale has tipped too far in the way of low rates. It's like saying taking two asprin will help your headache but taking 100 will kill you. We are taking 100 right now.

petegz28

06-10-2011, 01:35 PM

Let me ask you two..how have the excessively low interest rates done us? Other than causing the price of oil, metals, food materials etc., to shoot through the roof?

FD

06-10-2011, 01:50 PM

The Fed start increases? Maybe, there is increasing pressure from Fed Members to do so. Having said that the market is going to force the rates up.

Secondly it is not about inflation being above ore below target but that the fact that the current interest rate level is and has been for years now well below what it should be thus many economists referring to them as "artificially low".

The part you are not wanting to accept is the we are getting to the point that people are starting to call for other currencies to be the currency of choice. If that happens then you can peg super low interest rates as the reason America died as we know it economically.

Let's face some facts:

1. We are a consumption\importing economy not a manufacturing\exporting economy

3. It doesn't matter what the Fed does because buyers of bonds are going to go into full sell mode here in the next few weeks thus driving up rates whether the Fed lieks it or not.

4. The current rates are so low because we have been printing money to buy or own debt. This is a complete artificial move to give the impression that things are not what they really are. The free market will say otherwise once the Fed stops their buying.

This is just how it is. The Fed is out of bullets to play the shell game they have been playing

There is a lot of wrong economics in this post, but I can't address it all. I'll make a few points.

On point #4, the free market already determines the price of long term bonds, the Fed made perfectly clear how many bonds it would purchase in QE2 and has not deviated from that in any way or given any indication of further purchases. This means that the current market price of the 10 year bonds is just that, the price that the market thinks is the correct one. In other words, its the price the marginal buyer is willing to pay. Nothing about this will change when QE2 ends (as opposed to when it began.)

The Fed isn't changing short term rates anytime soon, and rightly so with the labor market still so weak and inflation still below target. Whether long term rates go up or down is a guessing game but you've given no reasons for your belief that they will jump drastically and in the next few weeks. Most importantly of all however, when interest rates go up it decreases businesses' incentives to invest. Lack of investment is one of the biggest problems we face, and even less investment will not be good for the economy, as you are arguing. Its completely wrong.

petegz28

06-10-2011, 01:57 PM

There is a lot of wrong economics in this post, but I can't address it all. I'll make a few points.

On point #4, the free market already determines the price of long term bonds, the Fed made perfectly clear how many bonds it would purchase in QE2 and has not deviated from that in any way or given any indication of further purchases. This means that the current market price of the 10 year bonds is just that, the price that the market thinks is the correct one. In other words, its the price the marginal buyer is willing to pay. Nothing about this will change when QE2 ends (as opposed to when it began.)

The Fed isn't changing short term rates anytime soon, and rightly so with the labor market still so weak and inflation still below target. Whether long term rates go up or down is a guessing game but you've given no reasons for your belief that they will jump drastically and in the next few weeks. Most importantly of all however, when interest rates go up it decreases businesses' incentives to invest. Lack of investment is one of the biggest problems we face, and even less investment will not be good for the economy, as you are arguing. Its completely wrong.

A) Horsehooey. Traders have been on the buy side of bonds because they knew they had a huge buyer in the Fed and rode the wave. Do not try to suggest normal market efficiency is at work here because it simply isn't.

B) I have given you reasons and as become habit you are ingoring them so I will do you a kindness and state them again.

1. Fed is going to stop buying = there will be a ton of selling = rates will go up
2. Foreign countries are becoming less interested in buying our debt at such low rates thus rates will have to go up to attract buyers

Your argument would be correct if we had not had the anomoly of the Fed printing off trillions of $'s to buy our own debt. They have been a huge buyer and one you would be foolish to take the opposite side of so the trade has been "buy bonds". That trade is coming to an end. If you think the Fed's lack of buying isn't going to have any effect on the market then we can wager a friendly casino cash bet.

Amnorix

06-10-2011, 02:02 PM

Excessive rates don't help an economy grow, correct. But the scale has tipped too far in the way of low rates. It's like saying taking two asprin will help your headache but taking 100 will kill you. We are taking 100 right now.

Yeah....no. I can go on and on, but I'm not going to bother. Just "no".

FD

06-10-2011, 02:03 PM

I'll just add one thing, about the value of the dollar. Increasing interest rates would increase the value of the dollar, which would seriously hurt our export industries, increase the trade deficit and lower economic growth. Why would this be good again? Our export industries are finally becoming competitive again and are adding jobs and you want to end all this why? Because of inflation which is A) below target and B) mostly a real phenomenon (emerging market growth.) Absurd.

FD

06-10-2011, 02:08 PM

A) Horsehooey. Traders have been on the buy side of bonds because they knew they had a huge buyer in the Fed and rode the wave. Do not try to suggest normal market efficiency is at work here because it simply isn't.

B) I have given you reasons and as become habit you are ingoring them so I will do you a kindness and state them again.

1. Fed is going to stop buying = there will be a ton of selling = rates will go up
2. Foreign countries are becoming less interested in buying our debt at such low rates thus rates will have to go up to attract buyers

Your argument would be correct if we had not had the anomoly of the Fed printing off trillions of $'s to buy our own debt. They have been a huge buyer and one you would be foolish to take the opposite side of so the trade has been "buy bonds". That trade is coming to an end. If you think the Fed's lack of buying isn't going to have any effect on the market then we can wager a friendly casino cash bet.

I'm sorry but this is just dead wrong on the pure economics of it. In an asset market, the flow of purchases is irrelevant, only the stock of purchases matters. By buying bonds during QE2 the Fed changed the stock, but that was a one time event. The flow ending wont change anything. The price of a bond is determined by the marginal buyers willingness to hold the STOCK of debt.

I understand this requires serious thought and knowledge of economics to understand, and since you cant seem to handle econ 101 (expansionary policy is, you know, expansionary) it would be asking a lot.

petegz28

06-10-2011, 02:40 PM

Yeah....no. I can go on and on, but I'm not going to bother. Just "no".

Disagree 100%. The results don't seem to favor the argument.

petegz28

06-10-2011, 02:41 PM

I'll just add one thing, about the value of the dollar. Increasing interest rates would increase the value of the dollar, which would seriously hurt our export industries, increase the trade deficit and lower economic growth. Why would this be good again? Our export industries are finally becoming competitive again and are adding jobs and you want to end all this why? Because of inflation which is A) below target and B) mostly a real phenomenon (emerging market growth.) Absurd.

Yes because we are such a large exporting country.

Amnorix

06-10-2011, 03:01 PM

Disagree 100%. The results don't seem to favor the argument.

How do you know that, if the rates were higher, the situation wouldn't be even worse than it is?

Amnorix

06-10-2011, 03:02 PM

Yes because we are such a large exporting country.

This just proves what a complete dip you are.

We're the third largest exporter in the world.

http://en.wikipedia.org/wiki/List_of_countries_by_exports

What we have is a massive imbalance not because we don't export, but because we are far and away the world's largest IMPORTER. So on net, we import much more than we export.

But that $1.3 trillion in exports -- 10% of the entire world's total -- forget it. We suck.

:rolleyes:

Stewie

06-10-2011, 03:07 PM

Interest rates cannot increase. It would lead to a depression much worse than the 30s. If they'd have done an interest rate increase five years ago and let the free markets straighten themselves out it would be different.

China is now claiming the US is already defaulting on their credit. That is, the deliberate devaluing of the dollar is proof that the debt is so huge it can never be repaid. The only answer is paying off the debt with cheaper dollars. Print, print, print. They may not call it QE3, but they have to do something similar.

petegz28

06-10-2011, 03:16 PM

How do you know that, if the rates were higher, the situation wouldn't be even worse than it is?

Because it is not an all or nothing scenario. If rates were a little higher the costs of certain everyday commodities would be lower. There is a give and take and right now it's too much on the give, or the take...whichever.

petegz28

06-10-2011, 03:18 PM

Interest rates cannot increase. It would lead to a depression much worse than the 30s. If they'd have done an interest rate increase five years ago and let the free markets straighten themselves out it would be different.

China is now claiming the US is already defaulting on their credit. That is, the deliberate devaluing of the dollar is proof that the debt is so huge it can never be repaid. The only answer is paying off the debt with cheaper dollars. Print, print, print. They may not call it QE3, but they have to do something similar.

If interest rates don't increase our $ is going to become worthless and then shit will really hit the fan. You keep printing money and you will price the $ out of existence (for all intents and purposes) and you will see gas and food and commodities soar. I am not saying raise them 5% but they have to come up from where they are now. We have no value in our $ which you can see with every trip to the gas station or grocery store.

petegz28

06-10-2011, 03:19 PM

This just proves what a complete dip you are.

We're the third largest exporter in the world.

http://en.wikipedia.org/wiki/List_of_countries_by_exports

What we have is a massive imbalance not because we don't export, but because we are far and away the world's largest IMPORTER. So on net, we import much more than we export.

But that $1.3 trillion in exports -- 10% of the entire world's total -- forget it. We suck.

:rolleyes:

We are the largest importer because we are a consumption based economy. That's why just about eveyrhing you buy is made somewhere besides here.

petegz28

06-10-2011, 03:22 PM

Let's not forget that a lot of the reason we the Fed is buying al this crap, and it is crap, was because we chose not to let comapnies fail that needed to fail. We chose not to let the free market do its job. No we are trying to manipulate things against the law of free enterprise and all it has gotten us so far is decreasin home values, increased unemployment and skyrocketing, food, energy and materials costs.

Amnorix

06-10-2011, 03:23 PM

Because it is not an all or nothing scenario. If rates were a little higher the costs of certain everyday commodities would be lower. There is a give and take and right now it's too much on the give, or the take...whichever.

What do you need more to make the economy grow, commodities or money? So what's more important, the cost of commodities or the cost of money?

Stewie

06-10-2011, 03:24 PM

If interest rates don't increase our $ is going to become worthless and then shit will really hit the fan. You keep printing money and you will price the $ out of existence (for all intents and purposes) and you will see gas and food and commodities soar. I am not saying raise them 5% but they have to come up from where they are now. We have no value in our $ which you can see with every trip to the gas station or grocery store.

The Fed is more than willing to sacrifice the dollar. Start raising rates and watch the shit hit the fan. We can't afford newly created debt with real negative interest rates. How does raising rates solve that problem? The Fed painted themselves into this corner. They should have started raising rates years ago, but easy money is the easy way out.

Amnorix

06-10-2011, 03:25 PM

We are the largest importer because we are a consumption based economy.

errr...yeah, I said that.

That's why just about eveyrhing you buy is made somewhere besides here.

As of 2009, 13.9% of the US GDP was imports, so only 13.9% of what "everyone" buys (including services and everything else that makes up GDP) is made somewhere besides here.

Stewie

06-10-2011, 03:30 PM

As of 2009, 13.9% of the US GDP was imports, so only 13.9% of what "everyone" buys (including services and everything else that makes up GDP) is made somewhere besides here.

Be careful. What qualifies as an import is restricted by definition. My company imports lots of goods that are not technically imported because of semantics.

petegz28

06-10-2011, 03:31 PM

What do you need more to make the economy grow, commodities or money? So what's more important, the cost of commodities or the cost of money?

As I have been saying this whole time it is not a 0-sum game. There has to be a balance. Right now money is too cheap so commodities are too high. You have to have a balance of stonger $ and cheaper commodities. Otherwise cheap money isn't going to help becuase it is going to take a lot more cheap money to buy the resulting high priced commodities.

Amnorix

06-10-2011, 03:31 PM

The Fed is more than willing to sacrifice the dollar. Start raising rates and watch the shit hit the fan. We can't afford newly created debt with real negative interest rates. How does raising rates solve that problem? The Fed painted themselves into this corner. They should have started raising rates years ago, but easy money is the easy way out.

Not sure that we can accurately predict the spike in inflation necessary to achieve a negative real interest rate.

Amnorix

06-10-2011, 03:32 PM

As I have been saying this whole time it is not a 0-sum game. There has to be a balance. Right now money is too cheap so commodities are too high. You have to have a balance of stonger $ and cheaper commodities. Otherwise cheap money isn't going to help becuase it is going to take a lot more cheap money to buy the resulting high priced commodities.

I should've stopped with my original answer to you. No. Just no.

petegz28

06-10-2011, 03:33 PM

The Fed is more than willing to sacrifice the dollar. Start raising rates and watch the shit hit the fan. We can't afford newly created debt with real negative interest rates. How does raising rates solve that problem? The Fed painted themselves into this corner. They should have started raising rates years ago, but easy money is the easy way out.

I'll agree they should have raised rates a long time ago. But you don't let the cancer spread throughout the body simply because it has gone from your hand to your arm and you don't want to lose the arm.

petegz28

06-10-2011, 03:34 PM

I should've stopped with my original answer to you. No. Just no.

In other words you don't have any answers. If low interest rates was the magic then we wouldn't be in this situation. Any economist worth his salt will tell you commodities are going up because the $ is going down. I have posted charts that show the direct correlation between the US$ and oil. It's not rocket science.

Amnorix

06-10-2011, 03:36 PM

Be careful. What qualifies as an import is restricted by definition. My company imports lots of goods that are not technically imported because of semantics.

Eh, no idea on the technicalities. My understanding is that imports are deducting from GDP, but I don't pretend to have a ph.D economists understanding of how that all gets calculated.

So double it -- instead of ~14% it's 28%. Pete is still wrong.

Stewie

06-10-2011, 03:37 PM

Not sure that we can accurately predict the spike in inflation necessary to achieve a negative real interest rate.

Rates can't get any lower, can they? This is why Bill Gross says anyone investing in bonds is a fool and is going to get killed.

Amnorix

06-10-2011, 03:42 PM

In other words you don't have any answers. If low interest rates was the magic then we wouldn't be in this situation. Any economist worth his salt will tell you commodities are going up because the $ is going down. I have posted charts that show the direct correlation between the US$ and oil. It's not rocket science.

No. In other words I'm not going to waste any more of my time trying to convince you of something that is fairly absurd on its face. I have better things to do, like clean out my toe jam, or something.

I understand that commodities are at least somewhat more expensive when the dollar is lower, at least to the extent we rely on importing them. But you're wrong when you say the only reason the price of oil is increasing is because of the weak dollar, and you're even more wrong when you speculate that letting the dollar get stronger (which may or may not happen to a great extent as a result of a marginal increase in interest rates) will have a net beneficial impact to the US economy.

Here's the price of oil in EUROS!

http://research.stlouisfed.org/fredgraph.png?g=ny

Amnorix

06-10-2011, 03:43 PM

Rates can't get any lower, can they? This is why Bill Gross says anyone investing in bonds is a fool and is going to get killed.

Rates cannot get lower. But to get a negative real rate you need inflation outpacing interest rates, right, so the banks are getting killed and lending becomes a net loss (real).

Or are we somehow talking past each other in some way?

petegz28

06-10-2011, 03:45 PM

No. In other words I'm not going to waste any more of my time trying to convince you of something that is fairly absurd on its face. I have better things to do, like clean out my toe jam, or something.

I understand that commodities are at least somewhat more expensive when the dollar is lower, at least to the extent we rely on importing them. But you're wrong when you say the only reason the price of oil is increasing is because of the weak dollar, and you're even more wrong when you speculate that letting the dollar get stronger (which may or may not happen to a great extent as a result of a marginal increase in interest rates) will have a net beneficial impact to the US economy.

Here's the price of oil in EUROS!

http://research.stlouisfed.org/fredgraph.png?g=ny

It's not the ONLY reason but a large part of it. Now go get a chart of the $ vs. oil though your chart proves my point anyway since as the $ has gone down the Euro has gone up.

petegz28

06-10-2011, 03:48 PM

No. In other words I'm not going to waste any more of my time trying to convince you of something that is fairly absurd on its face. I have better things to do, like clean out my toe jam, or something.

I understand that commodities are at least somewhat more expensive when the dollar is lower, at least to the extent we rely on importing them. But you're wrong when you say the only reason the price of oil is increasing is because of the weak dollar, and you're even more wrong when you speculate that letting the dollar get stronger (which may or may not happen to a great extent as a result of a marginal increase in interest rates) will have a net beneficial impact to the US economy.

Here's the price of oil in EUROS!

http://research.stlouisfed.org/fredgraph.png?g=ny

Also Commodities are not somewhat tied to the $...there is a much larger correlation due to the simple fact that they are denominated in US$. Basic economics, as the $ goes down things denomited in $'s go up, for the most part.

And yes, letting the $ get a little stronger will ease the cost of gas and food for people who will spend the money elsewhere. Again it is not a 0-sum game but you keep trying to make it out to be.

Stewie

06-10-2011, 03:48 PM

Rates cannot get lower. But to get a negative real rate you need inflation outpacing interest rates, right, so the banks are getting killed and lending becomes a net loss (real).

It's not the ONLY reason but a large part of it. Now go get a chart of the $ vs. oil though your chart proves my point anyway since as the $ has gone down the Euro has gone up.

In fact it's a small part of it. The price of oil is going up mostly because demand is up, and the Middle East is even more unstable lately than has historically been the case.

As the chart I posted shows, the price of oil has gone from under 30/bbl to over 80 even priced in Euros.

Again, I agree that some slice of the increased price of oil is the weakness of the dollar. But it's neither the primary factor, NOR is it -- more importantly -- enough to offset the damage to the economy from higher rates.

Not only are your ideas wrong, your understanding of the facts which support your ideas are wrong.

petegz28

06-10-2011, 03:58 PM

In fact it's a small part of it. The price of oil is going up mostly because demand is up, and the Middle East is even more unstable lately than has historically been the case.

As the chart I posted shows, the price of oil has gone from under 30/bbl to over 80 even priced in Euros.

Again, I agree that some slice of the increased price of oil is the weakness of the dollar. But it's neither the primary factor, NOR is it -- more importantly -- enough to offset the damage to the economy from higher rates.

Not only are your ideas wrong, your understanding of the facts which support your ideas are wrong.

HA, if you really believe that then go ahead and fool yourself. Again quit kidding yourself and go look at a chart of the $ vs. oil. It's not magic.

FD

06-10-2011, 04:00 PM

In fact it's a small part of it. The price of oil is going up mostly because demand is up, and the Middle East is even more unstable lately than has historically been the case.

As the chart I posted shows, the price of oil has gone from under 30/bbl to over 80 even priced in Euros.

Again, I agree that some slice of the increased price of oil is the weakness of the dollar. But it's neither the primary factor, NOR is it -- more importantly -- enough to offset the damage to the economy from higher rates.

Not only are your ideas wrong, your understanding of the facts which support your ideas are wrong.

There is no point trying to correct him, he has absolutely no idea what he's talking about. It seems obvious he started with the conclusion that rates were too low and from there backed out an argument about why. The fact that his argument contradicts basic economics hasn't slowed him down one bit.

There is no point trying to correct him, he has absolutely no idea what he's talking about. It seems obvious he started with the conclusion that rates were too low and from there backed out an argument about why. The fact that his argument contradicts basic economics hasn't slowed him down one bit.

I haven't backed out of anything.

FD

06-10-2011, 04:39 PM

I haven't backed out of anything.

:facepalm:

petegz28

06-10-2011, 04:55 PM

:facepalm:

facepalm yourself. All I keep hearing from you is that I am wrong yet you have yet to refute a damn thing I have said. You want to preach the tv mantra of disruptions in the middle east and low interest rates are the answer to all then be my guest, friend. Don't say I didn't try to warn you. You keep going down that path and you will follow Bernanke right off the fucking cliff. He has been wrong at every turn and he keeps spewing the same jibberish you are about low rates, printing money, etc., etc. You mark my words, if we don't get QE III and I hope we do not, you will see selling in the bond market because the free market will have a chance to finally correct the prices without some government coming in to purposely manipulate things to an artificial state. The QE trade is going to unwind and rates are going to go up in the process whether the Fed wants them too or not.Or they come in with QE III, print a ton more money and erode the $ to the point that every modern country in the world is going to dump the $ as the reserve currency of choice and the calls will begin for a world currency or mor than likely the Euro to start replacing the $ to denominate commodities.

Then you will see the cost of keeping rates artificially low for an extended period of time.

Direckshun

06-11-2011, 12:46 PM

I should've stopped with my original answer to you. No. Just no.

I was about to respond with the classic pete-ism "so in other words you know you're wrong."

Then, two posts later.

In other words you don't have any answers.

Death, taxes, and petegz28.

FD

06-11-2011, 05:03 PM

facepalm yourself. All I keep hearing from you is that I am wrong yet you have yet to refute a damn thing I have said. You want to preach the tv mantra of disruptions in the middle east and low interest rates are the answer to all then be my guest, friend. Don't say I didn't try to warn you. You keep going down that path and you will follow Bernanke right off the ****ing cliff. He has been wrong at every turn and he keeps spewing the same jibberish you are about low rates, printing money, etc., etc. You mark my words, if we don't get QE III and I hope we do not, you will see selling in the bond market because the free market will have a chance to finally correct the prices without some government coming in to purposely manipulate things to an artificial state. The QE trade is going to unwind and rates are going to go up in the process whether the Fed wants them too or not.Or they come in with QE III, print a ton more money and erode the $ to the point that every modern country in the world is going to dump the $ as the reserve currency of choice and the calls will begin for a world currency or mor than likely the Euro to start replacing the $ to denominate commodities.

Then you will see the cost of keeping rates artificially low for an extended period of time.

If you think I haven't refuted anything you should read post #11 and respond to it. You have offered no basis for your prediction, and you also have no basis for your view that higher rates are not contractionary.

petegz28

06-11-2011, 06:45 PM

If you think I haven't refuted anything you should read post #11 and respond to it. You have offered no basis for your prediction, and you also have no basis for your view that higher rates are not contractionary.

No basis? Are you ****ing kdiding me? I have presented plenty of basis. Higer is a relative term. Higher compared to what? If the Fed Fund Rate went up to .5 or even .75 it would not have the contradicatory effects you are talking about.

As far as basis goes I have given you the basis that just about every person on Wall St. will tell you...QE II is over. The Fed announced it's last buying of Treasuries on Friday. It's done. The meal ticket in the bond market is coming to an end. The Fed who was buying regardless of conditions is done. If you think for one second there aren't going to be people unwinding that trade then you are fooling yourself. Additionally I pointed out that foreign countries are becoming less interested in buying our debt at such low rates. The table is set for a selloff in the bond market. Money market inflows are on the rise. People are starting to bail out of bonds. I don't know why you refuse to accept these facts?

petegz28

06-11-2011, 06:49 PM

The flood of Federal Reserve money that has supported Wall Street and the rest of the U.S. economy for two and a half years will shrink to a trickle with the conclusion of the Fed's bond purchases announced Friday.

The Fed said it will buy $50 billion of Treasurys, the final series of government bond purchases that marks the last phase of the $600 billion program it launched in November 2010 to prevent another recession.

As a result, once the purchases are concluded June 30, the financial sector will receive only a fraction of the roughly $100 billion a month in easy money it has been getting from the Fed.

The conclusion of the Fed's bond-buying program, known as "Quantitative Easing 2," does not mean the stimulus will come to a complete stop. The Fed will reinvest maturing securities, mainly mortgage-related debt, which analysts predict will run at $12 billion to $16 billion per month.

While still a lot of money, it is a huge step down from stimulus levels at the height of the buying campaign, dubbed by markets as QE2 because it was the second round of Fed asset-buying in the wake of the 2008 financial crisis.

A key aim of QE2 was to hold down long-term interest rates to stimulate investment in capital equipment and risky assets.

It came almost eight months after the Fed's first round of bond purchases, primarily in mortgage-related securities.

The initial bout of quantitative easing, worth $1.73 trillion, began in December 2008 and ended in March 2010. It was created to stabilize the housing sector, which was the epicenter of the financial turmoil and has yet to show signs of recovery.

The Treasury bond component of the first round of purchases totaled $300 billion, from March to October 2009.

The Fed's buying assets has been controversial from the start. Critics say it is tantamount to printing money, and it has been credited with fueling a stock market rally but blamed for a surge in oil and food prices.

The end of QE2 has been well-flagged. The Fed said at the outset it would run until the end of June 2011.

Still, investors expect stocks, bonds, gold and the euro to fall after it ends, according to a Reuters poll of 64 analysts and fund managers last month.
http://www.cnbc.com/id/43356436

petegz28

06-11-2011, 06:51 PM

Still, investors expect stocks, bonds, gold and the euro to fall after it ends, according to a Reuters poll of 64 analysts and fund managers last month.

Now why would the price of gold, oil, the euro and stocks fall because QE II is ending? Because bonds are going to fall and the interest rates are going to rise therefore strengthening the $. Just as I have been trying to tell you. And while there are some people who are going to cry because their stocks and gold futures are going to fall, there will be even more people who will be celebrating cheaper oil prices when they go to fill up their cars.

FD

06-14-2011, 12:49 PM

I've been offline for a few days, but I'd like to add a few final thoughts to this thread, because these are important issues.

1) QE2 ending wont effect bond yields at all.

The only thing that matters for the price of an asset in a financial market is its stock, not any change in flow. The stock of bond purchases by the Fed isn't changing and so the effect on the market of it completing the flow of purchases is irrelevant. If someone tells you that bond prices have to fall because the Fed is going to stop buying them, that person just doesn't understand how financial markets work, either in theory or in practice.

To make this more clear, think about it this way. The quantity of purchases by the Fed has been well announced, so if it were true that when those purchases are completed the price of bonds would fall, then any investor could make a huge profit by shorting bonds after the date of the end. Since everyone knows this and could do it, the price immediately adjusts, well before the date that the purchases end. The information therefore is already built into the price. Nothing changes on the day the purchases end.

2) Natural changes in interest rates wont effect inflation

Its puzzling, but some people in this thread don't seem to see a difference between rate changes that result from Fed policy, and those that result from changing views in the bond market. Fed policy to lower rates is often inflationary. The Fed puts new dollars into the market, lowering interest rates but also increasing the money supply and leading to inflation. When lower interest rates result from growing skepticism by bond markets or a flight to safety, the money supply hasn't changed and there is not the same effect on inflation. Fed policy isn't changing, so even if interest rates naturally rise because the psychology of the bond market changes (I don't buy this at all, but it is the argument being made by people who think QE2 ending will raise rates. I think markets usually follow economic principles not psychological ones) it wouldn't matter for inflation.

3) Low interest rates still increase growth

Nothing about the current situation has reversed the laws of economics. When rates are low, it is cheaper for businesses to invest and consumers to buy houses and cars. When they are high, investment is more expensive and consumption is shifted into savings. Nothing about this is different.

Now, in a situation with high inflation, high growth and a tight labor market, Fed policy to raise rates would be the right move to tame the inflation. This is not the economy we are dealing with. Growth is low, capacity utilization is very low, unemployment is extremely high, and inflation is below target. A temporary surge in commodities and food that was mostly caused by real (non-monetary) phenomenon, hasn't changed this, as evidence by the fact that the market's expectations of future inflation actually fell during the past two months despite this surge.

One could hardly imagine an environment where the Fed raising rates would be MORE contractionary than the current one. Not only have the laws of economics not reversed, they are more true now than ever.

FD

06-15-2011, 10:57 AM

In this article, University of Chicago economist John Cochrane gives a good explanation of the widely misunderstood QE2 program:

All QE2 does is to slightly restructure the maturity of U.S. government debt in private hands. Now, of all the stories we've heard to explain our sluggish recovery, how plausible is this one: “Our big problem is the maturity structure of Treasury debt. If only those goofballs at Treasury had issued $600 billion more three-month bills instead of all these five-year notes, unemployment wouldn’t be so high. It’s a good thing the Fed can undo this tragic mistake.” That makes no sense. For the same reason, when money is the same thing as debt, it doesn’t cause inflation.

The 10 yr US Bond is back above 3% and the US$ index looks to be breaking out to the upside from a triangle pattern.......

the IMF the other day said interest rates are going to have to rise to combat global inflation.....

:hmmm:

petegz28

06-28-2011, 09:15 PM

Just a bit more techincal analysis on the 10 yr...

I am not seeing the type of price action yet that is going to set up a a rally in interest rates however certain technical indicators are showing that the decline in interest rates may very well be coming to an end.

The strength of the downtrend has been weakening over this last month indicating we are going to see a countertrend rally at best or sideways action at the least. Positive directional movement has started to cross above the negative meaning there is more upwards price action on the yield than there is downward.

MACD shows that obviously rates are in a oversold condition but triggers are starting to cross to show upward action at best and sideways at the least confirming the trend indicators.

From a purely price action perspective rates are at a support level and are giving early hints that they are wanting to bounce or at least not go down any further.

Again there still isn't a clear divergence in price and indicators that most technical analysts like to see but the stage is being set. Over the last month the MACD has started to rise as rates have continued their downward trend. This could be the beginning of the divergence most would want to see before calling an end to the downtrend in rates.

FD

07-12-2011, 03:47 PM

For those keeping score at home, Treasury rates are now 11 basis points below what they were when this thread was started last month. They are also 25 basis points below where they were the day QE2 ended, no surprise there.

Hopefully Pete didn't put too much of his money into shorting treasuries.

Stewie

07-12-2011, 03:55 PM

For those keeping score at home, Treasury rates are now 11 basis points below what they were when this thread was started last month. They are also 25 basis points below where they were the day QE2 ended, no surprise there.

Hopefully Pete didn't put too much of his money into shorting treasuries.

Only the banks are worried about peddling US debt. I see QE3 got a huge boost today. Gotta prop up the asshole bankers.

FD

07-12-2011, 03:58 PM

Only the banks are worried about peddling US debt. I see QE3 got a huge boost today. Gotta prop up the asshole bankers.

Says the guy who admitted himself that he didn't understand how QE2 works and that mistakenly predicted 100 times a scenario that never came.

And there was no new news today about "QE3" except in tinfoil hat land.

Calcountry

07-12-2011, 04:00 PM

The Fed start increases? Maybe, there is increasing pressure from Fed Members to do so. Having said that the market is going to force the rates up.

Secondly it is not about inflation being above ore below target but that the fact that the current interest rate level is and has been for years now well below what it should be thus many economists referring to them as "artificially low".

The part you are not wanting to accept is the we are getting to the point that people are starting to call for other currencies to be the currency of choice. If that happens then you can peg super low interest rates as the reason America died as we know it economically.

Let's face some facts:

1. We are a consumption\importing economy not a manufacturing\exporting economy

3. It doesn't matter what the Fed does because buyers of bonds are going to go into full sell mode here in the next few weeks thus driving up rates whether the Fed lieks it or not.

4. The current rates are so low because we have been printing money to buy or own debt. This is a complete artificial move to give the impression that things are not what they really are. The free market will say otherwise once the Fed stops their buying.

This is just how it is. The Fed is out of bullets to play the shell game they have been playingTo the extent the rest of the world gets off the dollar for their exchanges, yes.

To the extent that the rest of the world, still needs the dollar as a functional medium of exchange, i.e. reserve currency, the dollar will remain stronger than it otherwise should.

Stewie

07-12-2011, 04:02 PM

Says the guy who admitted himself that he didn't understand how QE2 works and that mistakenly predicted 100 times a scenario that never came.

And there was no new news today about "QE3" except in tinfoil hat land.

Umm... You didn't read the Fed announcement today about continuing quantitative easing? They have until September, like I've said before.

It's nothing but a shell game. IT HAS TO HAPPEN!

QE2 was to keep rates low to benefit the peddlers of US debt. Yeah, I got it.

Oh, and the end of QE2 won't be known until tomorrow. If you're so stupid to think that things would change on July 1st then good luck for you.

I'm positive the Fed statement today was to cast a shadow over the sale tomorrow.

Stewie

07-12-2011, 04:09 PM

http://img96.imageshack.us/img96/9287/goldzk.jpg

FD

07-12-2011, 04:12 PM

Umm... You didn't read the Fed announcement today about continuing quantitative easing? They have until September, like I've said before.

It's nothing but a shell game. IT HAS TO HAPPEN!

QE2 was to keep rates low to benefit the peddlers of US debt. Yeah, I got it.

Oh, and the end of QE2 won't be known until tomorrow. If you're so stupid to think that things would change on July 1st then good luck for you.

I'm positive the Fed statement today was to cast a shadow over the sale tomorrow.

You just keep on making those predictions. Maybe some day you'll get one right.

Stewie

07-12-2011, 04:15 PM

You just keep on making those predictions. Maybe some day you'll get one right.

It's not me, it's the Fed.

Should I have King Crab, Lobster or Filet Mignon for dinner?

http://img851.imageshack.us/img851/2926/712gains.jpg

Stewie

07-12-2011, 04:18 PM

WASHINGTON (Reuters) - Federal Reserve officials are ready to provide more monetary policy easing if the recovery is too sluggish to cut the lofty unemployment rate and if inflation eases as expected, minutes of their June meeting released on Tuesday show.

Stewie

07-12-2011, 04:37 PM

There is no question the economy is going into a double dip which will be lower on the second dip. Quantitative easing will continue with vigour.

Smart people.

petegz28

07-12-2011, 05:00 PM

WASHINGTON (Reuters) - Federal Reserve officials are ready to provide more monetary policy easing if the recovery is too sluggish to cut the lofty unemployment rate and if inflation eases as expected, minutes of their June meeting released on Tuesday show.

don't hold your breath on that one...the $ has come to the end of it's downrun and is startig to base out. The Euro problems are giving strength to the $ as well. We have broken out of a long term down trendline and formed a triangle consolidation which is usually a pattern that forms at the end of a trend. The last 2 days it has broken out of that triangle pattern to the upside. Don't look for much monetary easing anytime soon.

petegz28

07-12-2011, 05:01 PM

For those keeping score at home, Treasury rates are now 11 basis points below what they were when this thread was started last month. They are also 25 basis points below where they were the day QE2 ended, no surprise there.

Hopefully Pete didn't put too much of his money into shorting treasuries.

I'm not going short yet because the Euro crisis is driving people into our bonds. When the fog clears from that then it may be time.

FD

07-12-2011, 05:03 PM

Let's face some facts:

3. It doesn't matter what the Fed does because buyers of bonds are going to go into full sell mode here in the next few weeks thus driving up rates whether the Fed lieks it or not.

4. The current rates are so low because we have been printing money to buy or own debt. This is a complete artificial move to give the impression that things are not what they really are. The free market will say otherwise once the Fed stops their buying.

This is just how it is. The Fed is out of bullets to play the shell game they have been playing

What about these facts? Maybe you should get out of the predictions game.

petegz28

07-12-2011, 05:05 PM

What about these facts? Maybe you should get out of the predictions game.

Give it time, son. Greece and Italy have given a brief reprieve for bond bulls.

Stewie

07-12-2011, 05:07 PM

don't hold your breath on that one...the $ has come to the end of it's downrun and is startig to base out. The Euro problems are giving strength to the $ as well. We have broken out of a long term down trendline and formed a triangle consolidation which is usually a pattern that forms at the end of a trend. The last 2 days it has broken out of that triangle pattern to the upside. Don't look for much monetary easing anytime soon.

The dollar down-run? When was this published? This looks like an amateurish technical analysis of the FOREX market. It has nothing to do with a dollar rising and gold going to all time highs.

petegz28

07-12-2011, 05:10 PM

The dollar down-run? When was this published? This looks like an amateurish technical analysis of the FOREX market. It has nothing to do with a dollar rising and gold going to all time highs.

Then you have no idea wtf you are talking about. The $, in case you have missed it over the last few years, has been in a steady down trend. That trend line has been broken finally, the consoldation has begun. Let's ehar your techincal analysis if you think mine is so wrong.

FD

07-12-2011, 05:10 PM

Give it time, son. Greece and Italy have given a brief reprieve for bond bulls.

:rolleyes: Give me a break. I explained multiple times in this thread why the end of QE2 purchases wouldn't cause rates to rise, and you assured me multiple time they would soar. Just admit that you were wrong and that you don't really know how financial markets work.

petegz28

07-12-2011, 05:14 PM

:rolleyes: Give me a break. I explained multiple times in this thread why the end of QE2 purchases wouldn't cause rates to rise, and you assured me multiple time they would soar. Just admit that you were wrong and that you don't really know how financial markets work.

I won't admit I am wrong because I am not, yet. QE2 has been over for all of 2 weeks. Rates did indeed start to move up until this crap with the Euros hit.

Stewie

07-12-2011, 05:17 PM

Then you have no idea wtf you are talking about. The $, in case you have missed it over the last few years, has been in a steady down trend. That trend line has been broken finally, the consoldation has begun. Let's ehar your techincal analysis if you think mine is so wrong.

I give up trying to teach people. The downtrend is AGAINST OTHER FIAT CURRENCIES! It's a race to the bottom. That's why the dollar has risen and gold is at an all time high. Today it's the dollar, tomorrow it's the Euro, the next day it's the Yen.... and on and on and on.

petegz28

07-12-2011, 05:19 PM

I give up trying to teach people. The downtrend is AGAINST OTHER FIAT CURRENCIES! It's a race to the bottom. That's why the dollar has risen and gold is at an all time high. Today it's the dollar, tomorrow it's the Euro, the next day it's the Yen.... and on and on and on.

What exactly are you trying to teach me? You're a gold bug, that's about all I have ever gotten from your market analysis.

Stewie

07-12-2011, 05:20 PM

I think the US dollar being the reserve currency confuses too many people.

petegz28

07-12-2011, 05:21 PM

I think the US dollar being the reserve currency confuses too many people.

Confuses people how?

FD

07-12-2011, 05:22 PM

I won't admit I am wrong because I am not, yet. QE2 has been over for all of 2 weeks. Rates did indeed start to move up until this crap with the Euros hit.

Treasury rates have done nothing but fall since QE2 ended, 25 basis points. You don't think that discredits everything you said in this thread? You predicted a dozen times that rates would soar as soon as Fed purchases stopped, and the exact opposite has happened. Now that just doesn't look very good for you, son. You might want to go back and read my explanation for why the end of QE2 didn't matter. Educate yourself.

petegz28

07-12-2011, 05:23 PM

Treasury rates have done nothing but fall since QE2 ended, 25 basis points. You don't think that discredits everything you said in this thread? You predicted a dozen times that rates would soar as soon as Fed purchases stopped, and the exact opposite has happened. Now that just doesn't look very good for you, son. You might want to go back and read my explanation for why the end of QE2 didn't matter. Educate yourself.

Horsshit! The 10 yr was below 3% when QE2 ended. It immediately spiked up to 3.2% until Greece came back into the picture and the piss-poor jobs report. You're free tod o what you will with my take on the market. We will see where we are in 5-6 months.

Stewie

07-12-2011, 05:25 PM

What exactly are you trying to teach me? You're a gold bug, that's about all I have ever gotten from your market analysis.

What's wrong with being a gold bug?

I listen to really smart people and they've made me money for the past 10 years. In fact, my portfolio is at a record high today.

I'm pretty sure I've never given investment advice on CP. I've just butted heads with people that thought GM was a good investment in '06.

Good luck.

petegz28

07-12-2011, 05:26 PM

What's wrong with being a gold bug?

I listen to really smart people and they've made me money for the past 10 years. In fact, my portfolio is at a record high today.

I'm pretty sure I've never given investment advice on CP. I've just butted heads with people that thought GM was a good investment in '06.

Good luck.

Nothing but you're analysis otherwise seems to be a little off-base, imo.

Stewie

07-12-2011, 05:31 PM

Nothing but you're analysis otherwise seems to be a little off-base, imo.

I've been on CP since gold was about $500 and a major bull market (that continues). How has my analysis steered anyone wrong?

I'm sorry if you've missed the boat.

petegz28

07-12-2011, 05:36 PM

I've been on CP since gold was about $500 and a major bull market (that continues). How has my analysis steered anyone wrong?

I'm sorry if you've missed the boat.

You're not readind what I said, I said "otherwise". I never said you were wrong about gold.

FD

07-12-2011, 05:36 PM

Horsshit! The 10 yr was below 3% when QE2 ended. It immediately spiked up to 3.2% until Greece came back into the picture and the piss-poor jobs report. You're free tod o what you will with my take on the market. We will see where we are in 5-6 months.

QE2 ended June 30th. Rates have done nothing but gone down, son.

Now, I do believe ultimately rates will go up, simply for the fact that they are at near record lows right now, but predicting where rates will go in a couple weeks is a fool's game, and I'm just having some fun at your expense because you played that game and lost pretty bad in this thread.

Take it as a lesson, re-read my explanation of why QE2 ending wouldn't matter, and don't play the game anymore.

petegz28

07-12-2011, 05:37 PM

QE2 ended June 30th. Rates have done nothing but gone down, son.

Now, I do believe ultimately rates will go up, simply for the fact that they are at near record lows right now, but predicting where rates will go in a couple weeks is a fool's game, and I'm just having some fun at your expense because you played that game and lost pretty bad in this thread.

Take it as a lesson, re-read my explanation of why QE2 ending wouldn't matter, and don't play the game anymore.

Way to hedge yourself....rates won't go up but they will. Okay! I play the game just fine.

Stewie

07-12-2011, 05:38 PM

You're not readind what I said, I said "otherwise". I never said you were wrong about gold.

OK, remind me. What's "otherwise?" I don't invest in otherwise. I'm not being a bitch, I just want to know.

petegz28

07-12-2011, 05:40 PM

OK, remind me. What's "otherwise?" I don't invest in otherwise. I'm not being a bitch, I just want to know.

Well your take on currencies for one. I seem to remember a discussion a while back where we were talking about spot rates vs. futures, etc as well.

Stewie

07-12-2011, 05:40 PM

QE2 ended June 30th. Rates have done nothing but gone down, son.

Now, I do believe ultimately rates will go up, simply for the fact that they are at near record lows right now, but predicting where rates will go in a couple weeks is a fool's game, and I'm just having some fun at your expense because you played that game and lost pretty bad in this thread.

Take it as a lesson, re-read my explanation of why QE2 ending wouldn't matter, and don't play the game anymore.

QE3 will start in a few days. Rising rates will kill the US economy. QE2 ending didn't matter... QE3 is here.

petegz28

07-12-2011, 05:41 PM

QE3 will start in a few days. Rising rates will kill the US economy. QE2 ending didn't matter... QE3 is here.

I don't think inflation is going to allow for QE3.

Stewie

07-12-2011, 05:45 PM

Well your take on currencies for one. I seem to remember a discussion a while back where we were talking about spot rates vs. futures, etc as well.

The FOREX is for fools. That market is for gamblers.

Look at the paper silver market vs. silver availability. It's a cartoon. There are billions of ounces traded on paper daily, yet there's only about $1 million ounces available. That BS will end.

Stewie

07-12-2011, 05:46 PM

I don't think inflation is going to allow for QE3.

The Fed said they will continue easing. What more do you need to know?

petegz28

07-12-2011, 05:46 PM

The FOREX is for fools. That market is for gamblers.

Look at the paper silver market vs. silver availability. It's a cartoon. There are billions of ounces traded on paper daily, yet there's only about $1 million ounces available. That BS will end.

Trading the FOREX I agree is a fools game. That doesn't mean however that there are not impacts from currency rates.

petegz28

07-12-2011, 05:47 PM

The Fed said they will continue easing. What more do you need to know?

they also said they may have to tighten quicker than expected, you are telling half the story.

They said they would ease if inflation subsides and others on the FOMC said they would have to tighten quicker than they would like if it doesn't.

Stewie

07-12-2011, 05:56 PM

they also said they may have to tighten quicker than expected, you are telling half the story.

They said they would ease if inflation subsides and others on the FOMC said they would have to tighten quicker than they would like if it doesn't.